BERLIN/ATHENS, Dec 12 (Reuters) - Greece's foreign lendershailed a bond buyback as a success even though it narrowly fellshort of a target to cut the country's debt, paving the way forAthens to get long-delayed aid to avoid bankruptcy.

The scheme was intended to put Greece's debt mountain on amore sustainable footing but is now expected to cut it by lessthan initially hoped because of higher-than-expected prices tobuy back the bonds.

To make up the shortfall, Athens asked its foreign lendersfor an extra 1.29 billion euros over the 10 billion eurosinitially allotted to buy back all the 31.9 billion in bondstendered in the scheme.

Greece's major lenders -- EU paymaster Germany and theInternational Monetary Fund -- both endorsed the result,signalling Athens was on its way to getting over 34 billioneuros in aid this month to recapitalise its struggling banks.

In a letter to lawmakers obtained by Reuters, Germany'sfinance ministry recommended paying out the next tranche of aidto Athens, saying the bond scheme had ensured Greek debt wassustainable.

"Overall the buyback can be called a success," said theletter, adding that "the other conditions for the payment offurther financial help for Greece have been met".

Earlier, IMF director Christine Lagarde said that she toowas satisfied with the outcome.

"I can only welcome the results that have been produced bythe debt buyback," she said late on Tuesday after Greececonfidentially revealed the results to lenders.

The programme accounts for about half of a broader debtrelief package that lenders agreed for Athens last month, andits success had been seen as essential to keeping the IMFcommitted to a rescue plan mounted jointly with the EU.

The scheme was originally expected to cut Greek debt by 11percentage points of gross domestic product, but the Germanletter showed it would only cut debt by 9.5 points.

That in turn meant Greek debt would fall to only 128 percentof GDP in 2020, four points higher than the 124 percent the eurozone and the IMF accepted as a manageable level.

In the letter, Berlin said debt could still fall to therequired 124 percent level by reducing the interest Greece payson its rescue loans or via a new buyback for bondholders whorefused to take part in a debt restructuring earlier this year.

A study prepared for euro zone finance ministers in lateNovember said such a buyback would cut Greece's debt by 0.5percentage points of GDP in 2020 and 2022, assuming 1 billioneuros was spent to buy back bonds at 50 percent of face value.

Such a buyback would not require significant additionalfinancing for Athens, the study concluded.

NO BIG FUSS

Euro zone finance ministers and Lagarde are to discuss theway forward at a Eurogroup meeting on Thursday that will make afinal decision on releasing aid to Athens. In addition toGermany, Finland suggested that aid would be disbursed.

"I consider it likely that we can reach an agreement onpaying the next loan tranche in the meeting tomorrow," saidFinance Minister Jutta Urpilainen of Finland, one of thesharpest critics of Greek reform efforts.

Analysts also felt euro zone finance ministers would be able to tie up the loose ends, removing the threat of a Greekbankruptcy and a euro zone exit that has hung over financialmarkets and the bloc for months.

"There was a lot of scepticism a few weeks ago that theywould manage to do this at all. I don't think anyone will wantto raise a big fuss, they will find a way to disburse the aid,"said Sassan Ghahramani, CEO at New York-based SGH MacroAdvisors, a hedge fund consultancy.

The buyback has had to jump several hurdles before Greece'slenders could proclaim its viability.

Athens had to extend the deadline to Tuesday after fallingshort of an initial 30 billion euro target for bonds offered,and then had to rely on its own cash-strapped banks to push itabove that threshold.

Greek banks are estimated to have contributed almost alltheir bond holdings to make sure the plan worked, and may incurabout 2 billion euros in losses from their participation, Greekcentral bank chief George Provopoulos told lawmakers, citingbankers' own estimates. He did not provide further details.

Greek banks are in talks with the finance ministry to recoupsome of the losses through deferred taxation, Provopoulos said.

The bulk of the remaining offers is estimated to have comefrom hedge funds that purchased the bonds over the past monthsat rock-bottom prices, allowing them to make a tidy profit.

Greece will pay an average price of about 33.8 percent offace value on all series of bonds, the debt agency said -- aboveestimates given at the time the scheme was agreed last month.